Quantum's Q2 2026 Earnings Call: Contradictions in Gross Margins, Backlog Growth, and Supply Chain Constraints

Date of Call: November 13, 2025

Financials Results

• Revenue: $62.7M, down from $64.3M sequentially and $71.8M year-ago Q2
• EPS: GAAP: -$3.49 per share (net loss), versus -$1.87 prior quarter and -$2.54 year-ago; Non-GAAP: -$0.54 per share, improved from -$1.58 prior quarter and -$1.54 year-ago
• Gross Margin: 37.6%, up from 35.3% sequentially, down from 42.7% year-ago

Guidance:

• Revenue for Q3 expected to be approximately $67M, plus or minus $2M
• Non-GAAP operating expenses expected to be approximately $25M, plus or minus $2M
• Non-GAAP adjusted net loss per share expected to be -$0.51, plus or minus $0.10 (based on ~14M shares)
• Adjusted EBITDA expected to be +$1M, plus or minus $1M

Business Commentary:

* Financial Performance and Restructuring Impact: - Quantum reported revenue at the high end of its guidance range for Q2, with non-GAAP operating expenses reduced by $5 million from the prior quarter and achieving positive adjusted EBITDA. - The improvement was driven by the initial benefits of the restructuring implemented in June and the debt conversion agreement.

• Debt Reduction and Financial Transformation:
• Quantum reached a key milestone by entering into a definitive agreement to convert approximately $52 million in term debt to senior secured convertible notes, subject to shareholder approval.
• This transaction is part of Quantum's financial transformation, aiming to decrease its outstanding debt and interest expenses while increasing liquidity and financial flexibility.

• Product and Market Momentum:
• The company's product backlog exceeded $25 million, marking a significant increase from the historical target range of $8 million to $10 million.

• Sales momentum was driven by a new sales team, improved customer loyalty, and the reenergized go-to-market strategy, particularly in regions like EMEA and APAC.

• Innovation and Strategic Partnerships:

• Quantum introduced new capabilities in its ActiveScale platform, enhancing cold data functionality, and announced a strategic partnership with Entanglement for AI and HPC data center solutions.

• These innovations reflect Quantum's commitment to leading in secure, scalable data infrastructure and its focus on leveraging partnerships to drive growth.

• Customer Wins and Market Validation:

• Quantum won the Library of Congress 100-year Archive project, a significant achievement that validates the company's data solutions and platforms.
• The win underscores Quantum's market leadership in secure, high-density storage solutions for government and media sectors, solidifying its position in the industry.

Sentiment Analysis:

Overall Tone: Positive

• CEO: "this is the best financial position that Quantum has been in for some time." CFO: adjusted EBITDA improved to positive $0.5M (from -$6.5M sequentially). Company closed with record product backlog >$25M and highlighted new customer wins (Library of Congress) and product innovations (ActiveScale ranged restore).

Q&A:

• Question from Elle Niebuhr (Lake Street Capital Markets): This is Elle on for Eric Martinuzzi. I was just wondering if you could give a little more color on your pipeline build. So given the new senior sales additions, what is the current health of the North American pipeline? And then are there any new lead development processes implemented recently?
  Response: Pipeline is healthy across product lines with a record ~$25M backlog; sales team energized and lead generation now focuses on qualifying opportunities before handing to channel partners.

• Question from Elle Niebuhr (Lake Street Capital Markets): Just going off of product R&D, what are your development priorities for DXi backup appliances, the Scalar tape libraries and the StorNext file management software?
  Response: Priority is scaling Scalar i7 manufacturing, advancing ActiveScale features (ranged restore), reinvigorating the StorNext roadmap under the new CPO; DXi focus is on sales conversion rather than reprioritized R&D.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): That backlog number is jaw-dropping, congratulations. That's amazing. So let's talk about that backlog. Let's frame this up in terms of bookings. Well, first, before we do that, that backlog is just product? Or is that kind of plus book services as well?
  Response: Management: The backlog is product-only.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Product only. And therefore, product bookings would have to be up -- sorry, just give me a second. So product bookings were up 28% year-over-year, at least. Is that correct?
  Response: Management did not confirm the exact YoY number; core point is sales executed strongly late in the quarter, creating backlog that could not ship due to manufacturing constraints.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Of that $25 million product backlog, is there a significant customer concentration, especially given that there's some hyperscalers there? I mean is there like [ 15%, 20% ] of that backlog to some customer, or anything like that?
  Response: Backlog is fairly blended across customers and products; a small portion from a hyperscaler exists but not meaningfully concentrated.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Did that Library of Congress one go into backlog? Or is that -- was that recognized into revenue within the quarter?
  Response: The Library of Congress order is included in backlog.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): It's in backlog. Okay. Would that be potentially the largest element within your backlog then?
  Response: Library of Congress is a component of the backlog but not necessarily the largest element.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Okay. All right. So the bottom line is here is that you are seeing significant product momentum. And it sounds like you're attributing this to the changes in the organization that you brought to the table. Is that correct?
  Response: Yes — management attributes strong bookings momentum to improved sales culture and execution following organizational changes, while noting the need to sustain performance over multiple quarters.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Okay. And don't you guys have a significant federal vertical exposure?
  Response: They have federal business but acknowledge it's understaffed and requires more resources to grow.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Okay. But the government shutdown did not impact that portion of the business there, it sounds like.
  Response: Not significantly impacted by the shutdown; deals are back on track.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Okay. And then just given this significant product bookings backlog here, I mean, your $65 million implies that your product revenue would still be down year-over-year. Just walk us through the logic on why you're guiding that way given the significant bookings momentum that you saw through the September quarter and through the first month -- first 1.5 months of the December quarter.
  Response: Guidance is conservative due to supply-chain and manufacturing constraints (especially tape libraries) and an incomplete transition to Avnet that limit the ability to monetize backlog immediately.

• Question from Nehal Chokshi (Northland Capital Markets, Research Division): Product gross margin while gross margin did improve significantly overall, Laura, as you know, that's because of basically cost takeouts in the service organization. When we look at the product gross margin, it's still down like 500-plus basis points year-over-year. Can you put a narrative behind why that is? And do you expect an improvement on that product gross margin, and if so, why?
  Response: Product margin pressure stems from too many SKUs, supply tightness and rising component costs (e.g., aging DDR4); management plans to streamline platforms and supplier relationships to drive improved, more consistent product margins over 2–3 quarters.

Contradiction Point 1

Product Gross Margin Improvement

It involves expectations regarding the improvement of product gross margins, which are crucial for financial performance and investor expectations.

Why is the product gross margin down year-over-year, and do you expect improvement? - Nehal Chokshi (Northland Capital Markets, Research Division)

2026Q2: There are too many SKUs and platform constraints due to supply chain tightness. Efforts are underway to streamline and optimize the supply chain to improve margins. - Hugues Meyrath(CEO)

Will gross margin stay flat quarter-over-quarter despite expected EBITDA improvement? - Nehal Chokshi (Northland Capital Markets, Research Division)

2026Q1: Our gross margins for Q2 are expected to be in the range of 43% to 45%, reflecting the strong execution of our long-term cost structure and pricing strategy. - Laura Nash(CFO)

Contradiction Point 2

Sales Execution and Backlog Growth

It relates to the company's sales execution and growth in backlog, which are critical for revenue projections and market perception.

Can you provide more details on your pipeline build, the health of the North American pipeline, and any new lead development processes implemented recently? - Elle Niebuhr (Lake Street Capital Markets)

2026Q2: The pipeline is in good shape, with record backlog at $25 million across the product line. - Hugues Meyrath(CEO)

Has the product mix strategy changed for Myriad or ActiveScale, or will the focus stay on the existing portfolio? - Eric Martinuzzi (Lake Street Capital Markets, LLC, Research Division)

2026Q1: Sales exceeded our guidance for the quarter, driving a sequential increase in bookings and backlog. - Hugues Meyrath(CEO)

Contradiction Point 3

Backlog and Revenue Expectations

It involves the company's expectation regarding backlog conversion into revenue, which is crucial for financial forecasting and investor expectations.

Can you provide an update on the pipeline build and the current state of the North American pipeline? Have new lead development processes been implemented? - Elle Niebuhr(Lake Street Capital Markets)

2026Q2: The company is encouraged by the bookings momentum and record backlog to start fiscal year 2027. The chairman and CEO expect strong revenue performance in fiscal year 2027, beginning with record product revenue in fiscal first quarter 2027. - Hugues Meyrath(CEO)

Do you expect the elevated backlog to persist into the March quarter? - Nehal Chokshi(Northland Capital Markets, Research Division)

2025Q2: Headwinds from supply chain and manufacturing transition are expected to persist, buffering into the guidance. - Kenneth Gianella(CFO)

Contradiction Point 4

Subscription Revenue Growth

It involves differing perspectives on the growth and significance of subscription-based revenue, which is a key strategic initiative for the company.

What are the R&D priorities for DXi backup appliances, Scalar tape libraries, and StorNext file management software? - Elle Niebuhr (Lake Street Capital Markets)

2026Q2: Subscription ARR increased 29% year-over-year to $21.3 million with over 90% of new sales in the quarter on subscription. - Hugues Meyrath(CEO)

Questions about the transition to a subscription model and subscription ARR growth? - Multiple Analysts

2025Q3: Subscription ARR increased 29% year-over-year to $21.3 million with over 90% of new sales in the quarter on subscription. - Hugues Meyrath(CEO)

Contradiction Point 5

Supply Chain Constraints and Production Challenges

It concerns the impact of supply chain constraints on production and revenue expectations, which can affect investor confidence.

Why is product revenue expected to decline YoY despite significant backlog momentum? - Nehal Chokshi (Northland Capital Markets, Research Division)

2026Q2: There are still challenges, such as supply chain constraints and manufacturing limitations. - Hugues Meyrath(CEO)

Are there plans to fill open management or board positions? - Eric Martinuzzi (Lake Street Capital Markets, LLC, Research Division)

2026Q1: The execution against the product roadmap was a highlight of the quarter with the delivery of the new platform and GPU production coming online as expected. - Hugues Meyrath(CEO)